• Five factories shut down in Katunayake in past 5 years 
• Labour Dept. has poor records of closures 
• Monitoring Division exists in Katunayake but Next’s decision to shut down was ‘sudden’ 

The procedure followed by Next Manufacturing when shutting down its manufacturing division at the Katunayake Export Processing Zone (EPZ) shines an uncomfortable light on the enforcement of labour law for investors in the country. 

After over 40 years in operation, Next closed down its manufacturing arm in Katunayake on 19 May, terminating the employment of 1,341 employees. 

In an initial letter to affected employees, as seen by The Sunday Morning, Next said these employees would receive severance, calculated based on their Termination of Employment of Workmen Act (TEWA) entitlement and a minimum of two months pay additionally. However, a few days later, workers were asked to sign a voluntary resignation of service letter, and were informed they would receive an “enhanced” severance package before 15 June. 

Next may provide a fair compensation for the employees who were made redundant, but there remains a question of whether it adhered to the TEWA, which provides for two pathways before a company shuts down and lays off workers. 

The company is either required to speak with its employees, negotiate a compensation package, resolve their complications, and obtain their consent to close down, or alternatively, inform the Commissioner of Labour so that the latter has oversight on how employees will be protected during the closure. 

According to Commissioner General of Labour Nadeeka Wataliyadda, Next Manufacturing has given the closure application on 20 May, four days after it shut its doors. 

Questions about closure procedure 

United Federation of Labour (UFL) Assistant Secretary Suranjaya Amarasinghe noted that in this context, a serious question arose about the steps Next had taken when shutting down. 

“We have to ask this from the Government, which is enforcing this law. What is the Labour Department doing? Whatever politicians may say in Parliament, the loss of work to 1,400 workers means that 1,400 families are affected. The TEWA was introduced to create a system of checks and balances, with the State having oversight on the political and economic power that employers wield,” said Amarasinghe. 

UFL President and Attorney-at-Law Swasthika Arulingam said that in an instance where a company disregarded the TEWA, the Government must immediately intervene and stop the closure, and then proceed to discussions with all parties on how the manner must be handled. 

In the past five years, five factories have closed down at the Katunayake EPZ, according to Board of Investment (BOI) Katunayake EPZ Director A.S.K.T. Ranjan Sibera. In the Koggala EPZ, one factory has closed down in the same time period due to a legal dispute. 

Lack of official data 

When The Sunday Morning reached out to the Labour Department for data on any closures of BOI companies operating in the country – both within and outside EPZs – it was revealed that the Termination of Employment Branch did not specifically have a category for information on BOI companies. 

The Labour Statistics Division also lacks accurately updated data as it only collects information about companies that haven’t made Employees’ Provident Fund (EPF) payments, which could either mean closures or a temporary non-payment of EPF. 

An investor’s agreement with the BOI states that employers must abide by the country’s labour laws, meaning they must either discuss with the workers and follow the voluntary retirement scheme or inform the Labour Commissioner when shutting down. 

Next had informed the BOI on the same day it closed down, said Sibera, adding that the procedure was now “under control”. 

A monitoring arm at the BOI attempts to observe signs of closure by closely analysing the imports and exports of companies, while being in close consultation with them. This allows the BOI to both protect workers in the zones and try to encourage companies to continue operations. 

“In the case of Next, the decision was sudden; it was a management decision and we also didn’t know about it,” said Sibera. 

A bad precedent? 

The apparel industry, which mainly powers Sri Lanka’s EPZs, accounted for over 40% of the country’s total merchandise exports in 2024. However, in the past five years, workers in the apparel sector have been on the frontlines of many battles, from Covid-19 to Sri Lanka’s economic crash. 

The most recent shock came earlier this year when US President Donald Trump announced ‘reciprocal tariffs,’ which imposed a startling 44% tariff on all imports to the US from Sri Lanka. If implemented, this tariff could spell serious trouble for employees in the apparel industry.  

Labour rights activists are concerned that Next’s behaviour sets a “bad example” for other employers, especially at a moment of heightened uncertainty for the entire apparel sector. 

Dabindu Collective Executive Director Chamila Thushari said companies had benefited by operating in Sri Lanka, whether it was through obtaining debt relief during the 2008 market crash, utilising the infrastructure in the zone, or enjoying tax relief. 

“The BOI and the Government must not allow workers’ rights to be violated in this way,” said Thushari. 

However, BOI Head of Zones M.K.D. Lawrance told The Sunday Morning that investors were “aware” of their labour obligations under the labour regulations in Sri Lanka. 

“There is no need to reiterate obligations and regulations to them. We have a Monitoring Division that predicts closures by analysing biannual reports and statements, and a separate team that looks after labour matters,” he said. 

In the case of Next, the basic issue had been the cost of operations in Katunayake, said Lawrance. With air-conditioned facilities jacking up electricity bills and competition for human resources resulting in salaries higher than Rs. 45,000, operations were costly. Next continues to operate in remote areas. 

“In that context, we can’t do anything. They will close down this one but will generate more employment in remote areas. There are decisions – sudden ones – and if we aren’t informed, we have to see how we will take care of the employees. That part we undertake,” he added.  

TEWA disregarded?

The case of Next highlights how the TEWA can be disregarded as the Labour Department, the employer, and the workers negotiate in the face of sudden announcements of closure. After Next informed the department of its decisions, multiple discussions had followed between the employer and the workers, even involving the Labour Minister.

However, Arulingam said the Government should have instead stopped the closure using the power of the TEWA and come to a discussion with the interested parties on how the matter should be handled. 

“The company’s profit- or loss-making is not the Government’s concern – you don’t have to sit and defend it. We have a labour law in this country protecting the rights of workers and about 1,400 workers have lost their jobs. You’re making a mockery of their suffering in Parliament by allowing them to disregard the law that exists to protect workers’ rights. Who did you decide to please when you decided not to implement the TEWA?” she asked the Government. 

The Sunday Morning was unable to reach Deputy Minister of Labour Mahinda Jayasinghe at the time of writing as he was overseas.